AFT Overview
AID FOR TRADE
Overview
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| Stronger economies should result from expanded regional trade. Photo by Gideon Mendel |
The Task Force (which concluded its work in mid 2006) identified five categories for Aid for Trade (the latter three of which were new):
· Trade Policy regulation
· Trade development
· Building productive capacity
· Trade-related infrastructure
· Trade-related adjustment
Trade liberalisation measures which were widespread in the 1990s, on their own did not have the desired effects on the promotion of economic growth. Little attention was paid to the supply side of the equation and consequently constraints in infrastructure, support services and utilities, availability of skills etc, diminished the potential growth from regulatory developments alone. In fact, the emphasis on the demand side of economic development often resulted in the opposite: economic decline and unnecessary de-industrialisation. As a result, there is now a more cautious, balanced approach and without down-playing the demand side it is also recognised that there needs to be a strong supply side component. Indeed, both elements (supply and demand) form the two pillars of the development component of the Doha Development Agenda.
‘Aid effectiveness’ is also important so that it is not enough just to commit funds but procedures have to be such that they can be accessed. As a result, Aid for Trade is guided by the Paris Declaration on Aid Effectiveness with its core principles of ownership; alignment (support for the recipient partner’s own agenda and administrative systems) and harmonisation (the establishment of common arrangements, simplified procedures and information sharing) – all underlined by the basic principles of accountability and the need to produce results.
These are guiding principles for Aid for Trade, however, possibly the crucial difference between it and the many previous initiatives is that programmes and projects have to have been identified as trade-related development priorities in a country’s own national development strategies ,indeed, this is the fundamental requirement.
What is Aid for Trade?
WTO describes it as “aid that finances trade-related technical assistance, trade-related infrastructure and aid to develop productive capacity”. However, it is probably easier to say what Aid for Trade is not, rather than to give a specific definition of what it is. It is not a stand-alone financing mechanism. It does not have its own set of unique implementation modalities and it cannot be easily separated from other aid allocations, either by the donors and IFIs themselves or by the recipient countries or by the OECD DAC.
Furthermore, it is not an enforceable commitment. Developing countries ‘endeavour’ to mainstream trade into their development plans and partners ‘endeavour’ to assist this process by supporting the supply side of the equation. A viable and coherent national or regional trade mainstreaming strategy is therefore the starting point.
Financing of Aid for Trade:
Donors and the IFIs have been providing grants and concessionary loans to developing countries for many years to assist them to build capacity in the trade sector; to improve the communications and transport infrastructure; to increase productivity and reduce marginal costs where there is a comparative advantage as well as meeting adjustment costs. The challenge for Aid for Trade though is not only to mainstream trade into national development strategies but also to get the many existing development assistance mechanisms to work together more effectively and to be predictable and sustainable.
With regard to regional financing, there is a dearth of appropriate instruments at the regional level largely because of the fact that the World Bank and the African Development Bank are financed through the subscriptions of their member countries (and regional organisations are not members).
Originally it was thought that because all OECD/DAC members had made commitments for their total aid levels to at least 2010 there would not be ‘additional’ funds for Aid for Trade. Now, however, some further funds have been committed although in essence it is more a question of how to use the existing funds more effectively rather than committing new resources. As indicated, the Paris Declaration is at the heart of Aid for Trade and adherence to its principles will also assist the public sector to work with the private one.
Although financing and implementation of Aid for Trade is usually assumed to be a partnership between the recipient government’s public sector and the donor community and IFIs, there is a role that the private sector could, and should, play. The intention is, therefore, that they should be brought into partnership with the public sector to reduce the cost of production for export and the costs of getting goods to markets across borders. There are not many opportunities available to the private sector to profitably invest in the trade-related sector and the challenge is to identify these opportunities and structure financing in such a way as to make it accessible to them.
Although it may seem a good idea in principle to set up a multilateral trust fund specifically for Aid for Trade, with the recent experience of the enhanced Integrated Framework, it may not be so good in practice. Current thinking, therefore, is that there is sufficient flexibility in existing funds to finance Aid for Trade. (For example, whilst the procedures laid down in the European Commission’s EDF 9 would not have enabled Aid for Trade financing, it is believed that the forthcoming EDF 10 is an ideal Aid for Trade vehicle.)